Change

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Understanding Change

Theory, Implementation and Success

Linda Holbeche

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Acknowledgements

For this particular work I owe a debt of gratitude to many people. First, I would like to thank all those individuals and organizations who have kindly allowed me to draw on their good ideas and practice for this book. In particular I am grateful to Professors Dave Ulrich and Wayne Brockbank for generously allowing me to use their model of HR roles, and to Barry Dyer of BUPA, Ian Greenaway of MTM Products and Fleur Bothwick of Lehman Brothers in the UK for their valuable input.

I would like to thank John Gilkes, CEO of Roffey Park, and his predeces-sor, Val Hammond, for their support. I am also grateful to all my colleagues at Roffey Park, especially to my fellow researchers – Valerie Garrow, Claire McCartney, Annette Sinclair – whose work has been a source of inspiration, to Melissa Green and Pauline Hinds, who have provided endless encourage-ment, and to Nigel Springett for his contribution. Special thanks are due to Teresa Boyle for her work on preparing the text and checking references, and to Melanie Ellis and Clive Ruffle for their help and thoroughness in carrying out searches.

Thanks are also due to the team at Elsevier/Butterworth-Heinemann: Maggie Smith, the Editor of this book, as well as Ailsa Marks and Katherine Grant, who have all provided sound advice, ideas and encouragement. Maggie’s patience and good humour during the writing of this book have made her a pleasure to work with. I am also very grateful to Elaine Leek for her diligent work on the text and to all the team, including Francesca Ford, Claire Lawler and others, who have been involved in the production and mar-keting process.

I would also like to thank my sister, Dr Joan Hudson, and her husband, Dr Mike Hudson, for their ideas and enjoyable debate. Above all I would like to thank my husband, Barney, for his loving support during the writing of this book and my mother, Elsie, and my late father, Bill, for all their encourage-ment and belief in me.

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Overview

Today’s organizations operate in a challenging environment. In an ever more complex world, change has become the constant. Add globalization to tech-nological shifts, multiply by today’s volatile economic climate, and you have what D’Aveni (1994) calls ‘hypercompetition’ to describe the disorder and unpredictability facing 21st-century organizations.

The pace of change is breathtaking, with market conditions for major com-panies changing worldwide every two to three years, bringing with them new rules for how business is to be conducted. No organization is immune. In mature sectors in particular, where the pace of consolidation is accelerating, organizations have had little option but to grow through acquisition or be absorbed. The current period is likely to see ongoing change as organizations attempt to move into the new economy while maintaining their conventional products and markets. Continuing the status quo is not an option.

The changing environment is causing organizations to restructure and reconfigure their operations, processes and the nature of their products. The reality of increasing customer choice is causing organizations to reinvent themselves on a continuing basis. New forms of working, such as sun-time working and teleworking, enabled by technology are fuelled by, and fuelling the competitive demands for cheaper, better, faster and round-the-clock avail-ability of products and services. Given this context, a company’s longer-term viability depends to a large extent on its ability to make organization-wide change happen – fast. If change is now the norm we should instead perhaps be thinking of how to manage ‘dynamic stability’, rather than thinking of change as the exception to the norm.

This book is intended to provide an overview of change as a process, and offers a range of tools that will enable the change leader to make appropriate choices at all stages of the change process.

The need for strategic change

Being able to manage change effectively is key to organizational survival. This ability to change effectively is probably the Achilles’ heel of even very successful companies – Marks & Spencer is only one of many examples of companies that have hovered on the brink after decades of previous success. But achieving strategic change is not easy in a predominantly market-driven short-term culture. Despite the amount of change activity that many

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organizations have undertaken in recent years, the sad fact of the matter is that most change efforts fail. Ironically, the very process of change can damage the outcome of the change effort. Mergers, for example, still largely fail to achieve their potential. A number of factors are known to contribute to failure, including inappropriate business strategies, poor change implementation and lack of vision. For Andrew Pettigrew (1990), ‘strategic change is now to be viewed as a complex human process in which differential perception, quests for efficiency and power, visionary leader-ship skills, the vicariousness of chance, and subtle processes of additively building up a momentum of support for change, and then vigorously imple-menting change, all play their part’.

Some of the questions I explore throughout the book are: How can change be managed so that it builds for a successful future, yet satisfies short-term requirements too? What are the cultural ingredients that can equip an organ-ization to survive and thrive? What kinds of practice can form the basis of future revenue streams? What will make for sustainable success?

Sustainable success

The notion of ‘sustainable success’ is undergoing transformation. In consider-ing where sustainable success might come from in the future I have consid-ered work by theorists who have examined the characteristics of long-lived organizations. I suggest that mere corporate longevity will not necessarily be a reliable measure of sustainable success in the future. Similarly, while hav-ing ‘the big idea’, great products and excellent distribution channels will help produce good business results, no longer are the pursuit of high profits and shareholder value likely to be seen as an organization’s sole raison d’être.

This is because, in a global economy, organizations will increasingly have to take account of the changing world ‘rules’. Reputation is becoming key to ongoing success for both individuals and organizations. Consumers are already turning against corporations whose products harm the environment or people, and companies are increasingly likely to be judged on their contribu-tion towards their community and their willingness to play a part in global or local renewal. Consumers expect the promise of corporate branding to be matched by the reality of the customer experience. If not, they go elsewhere. They are becoming sceptical and mistrustful about the ethics of business leaders, politicians and professionals. Sustainable success will require a strong moral and ethical stance where practice matches rhetoric.

I suggest that these elements, though important, do not represent the total mix of ingredients that will make for sustainable success. I argue in this book that the main basis of sustainable high performance will be an organization’s ability to manage change in ways that energize and enrich employees. After all, in a volatile context, today’s great idea and latest product are soon matched by the competition. The pressures to achieve more with less mean that organizational change is usually focused on

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squeezing ever-greater efficiencies and cost-savings out of the existing organization and achieving higher margins. Knee-jerk reactions to the latest competitor move, or the latest management fad, tend to lead to initiative overload and prevent a really strategic approach to change. I believe that such an approach ultimately leads to failure. Employees are usually the people who suffer most when change is handled badly and employees – their ideas and energies – are the source of future revenues.

Therefore, strategic change should be geared to building capabilities and an organizational culture conducive to sustainable high performance. The focus should be as much about future business success as providing benefits in the here-and-now; it should be about revenue growth, not just on cost reduction and efficiencies. To achieve this means that change needs to be managed in ways that protect and grow, rather than destroy, the very organizational capabilities that offer the potential for innovation and new business opportunities.

Drawing on research data and other sources, I define a high performance organization as one that is flexible and innovative, one that attracts and retains key employees who are able to operate across organizational bound-aries. It has a culture that is conducive to innovation and knowledge creation; one that stimulates employees to excellent performance; is values-based and a great place to work; and one that is underpinned by appropriate levels of lead-ership, accountability and empowerment.

Aiming to build a change-able culture is one thing; making it happen is another. Most theorists now agree that the key challenge of change lies in gaining employees’ willingness to commit to the change effort. Resistance to change is commonplace despite, or perhaps because of, people’s familiarity with change. Moreover, leading change is not easy – it is not just a rational process; it is a highly political, intuitive and emotional process too. Change leaders at any level need to be able to understand the human elements at work in any change process, and to use judgement about the nature of the leader-ship task required to give the change effort the best chance of success.

Moreover, employee commitment has been undercut by the cumulative effect of the widespread changes of recent years, which have had a destabiliz-ing effect on many of the widely held assumptions about what employees and employers might expect of each other, with paternalistic career processes being an early casualty of change. Old concepts such as a job for life and loy-alty to a single employer have had their day. Building a change-able, high performance organization may require rethinking the nature of the employ-ment relationship between employers and employees, seeing employees less as ‘resources’ and more as ‘partners’.

It will therefore be in an organization’s best interests to focus on growing its capabilities through attracting, motivating and retaining human talent. This will mean building a partnership with employees on issues that matter greatly to them, such as careers, if the organizations themselves are to survive and thrive in future. In some sectors there is already evidence that the power bal-ance between employee and employer is shifting. The changing nature of work and the rising expectations of employees with marketable skills are

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driving organizations which are already experiencing skills shortages to respond vigorously to employee needs in their attempt to recruit and retain the best. The notion of choice has spread to employees too.

How this book works

My intention in writing this book is to provide change practitioners – whether they are executives, line managers, HR practitioners or other change agents – with information, theory and tools which are of practical use and are grounded in organizational reality, as well as having a sound theoretical setting.

In writing this book I have consulted a range of sources, including works by De Geus (1997, 2003), Kotter and Heskett (1992), Deal and Kennedy (2000), Stace and Dunphy (2001), Collins and Porras (1995), Collins (2001) and Peters and Waterman (1982). I have added to this mix various research studies and, in particular, findings from a Roffey Park Institute survey known as The Management Agenda, focusing mainly, but not exclusively, on UK-based organizations. This annual survey has charted since 1996 the lived experience of the changing workplace reported by employees and managers. From these findings I have developed a framework for exploring the practices that can support the development of a successful and humane organization. Case studies are drawn from consultancy practice and a wide range of current research projects.

In Part One we shall look at the context and drivers for organizational change and how change can affect employees. In particular we will explore how change undercuts the basis of the ‘psychological contract’. We consider the reasons why successful change is difficult to achieve and why many change efforts actu-ally undercut the organization’s future viability. As a survey by the Wyatt Company in 1993 (The 1993 Survey of Corporate Restructuring) found, few companies achieved the goals set by restructuring, such as reducing costs and expenses, increasing shareholder return on investment. The survey also found that 43% of companies surveyed took two years or more to recover from the restructuring so that people could focus on work again in a productive manner. The organization’s culture, ‘the way we do things around here’, provides the context within which change takes place. If an organization is to achieve stretching performance targets, the ‘way we do things around here’ has to be aligned to strategic intent. We consider how culture can be understood and the implications of trying to change culture. With regard to change, we shall explore how culture is continuously being created and that ‘you can’t paint it on afterwards,’ as one chief executive told us.

In Part Two we look at where theories regarding high performance organiza-tions have come from and what they are. We shall consider the kinds of organ-izational and managerial practices which appear to support, or block, sustainable high performance. The primary source of data referred to is Roffey Park’s Management Agenda survey. We shall look at the Roffey Park working defin-ition of the elements of a high performance organization, from the employee

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perspective. The definition focuses on the ‘input’ side of business life, which leads to good ‘outputs’ in terms of performance and business results.

According to this definition, a high performance organization:

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Is adaptable, flexible and change-ready

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Has a culture supportive of innovation, sharing and knowledge-creation

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Is where people work effectively across boundaries (functional, depart-mental, organizational, geographic, diversity etc.)

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Is values-based

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Stimulates individuals to ever-higher levels of performance

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Is a great place to work.

The unifying factors of the definition are leadership, accountability and empowerment. More detail of how organizations can develop the various aspects of this model in their practices can be found in my book The High Performance Organization: Creating Dynamic Stability and Sustainable Success (2005).

We shall explore a range of theoretical approaches to change and consider which (blend of) approaches might best lend itself to a turbulent environment and to building the foundations of sustainable high performance. We shall also examine how cultures can be transformed to become ‘change-able’ through learning organization approaches to change and culture.

In Part Three we look in more detail at ways in which major change can be handled and at the roles taken by principal change agents such as leaders and HR professionals. We focus here mainly on ‘planned’ approaches to major change. We shall consider how communications can be handled to keep people on board with change and to stimulate involvement and ownership. We shall consider the typical human reactions to change and what managers can do to support people through periods of change. We look at the role of change agents, such as leaders and human resources professionals, and consider a case study of how the HR profession is itself undergoing major long-term change. Most importantly, we shall look at what needs to happen to secure employee commitment. Organizations are clear what they want from employ-ees in terms of performance. They need to be clear what they need to do for employees in return. They must go some way to addressing the needs of employees and see the achievement of sustainable high performance as a partnership venture. Fair treatment builds trust. Trust is the basis of the new psychological contract. We shall look at what organizations can do to rebuild trust as the basis of commitment, because when talented people have choices they opt to work for great employers who value them, reward them equitably, treat them as stakeholders, operate ethically and are driven by higher purpose. Change is not going to disappear. We need to take stock of what can be done to transform the challenges of change into the source of dynamic stability. By planning for emergence, by strategically building capability and flexibility, by acting as good employers and operating humanely, organizations maximize their chances of achieving sustainable high performance through change.

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Part One: The Changing

Context and the Impact

of Change

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1 Introduction: beyond ‘white

water’

No longer able to forecast the future, many leading organizations are constructing arks comprised of their inherent capacity to adapt to unforeseen situations, to learn from their experiences, to shift their shared mindsets, and to change more quickly, broadly and deeply than ever before.

(Rowden, 2001)

Whatever their sector, today’s organizations are operating in a fast-changing marketplace. Change is everywhere. Global competition, rapid technological advances and more demanding consumers are putting pressure on organizations in every sector to provide high quality products and services. Given the extent of price competition and ever-increasing standards, companies can no longer compete just on quality. Status quo is rarely an option. Innovative, tailored solutions delivered in a timely, inexpensive way are the minimum demands of today’s consumer. Added value – the magic ingredient – is what differentiates the best supplier from the rest.

In this opening section of the book we will look at some of the major con-textual drivers for change. In this chapter I argue that change is inevitable. Furthermore, since change is an inexorable part of organizational life, the notion that we will emerge from the ‘white water epoch’ into a period of rela-tive calm and stability may be wishful thinking. What remains a matter of choice is how organizations bring about change.

The need for ongoing transformation and learning

The rules of the game for organizations in every sector are changing and chang-ing rapidly. If not ‘revolution’, the pace of change suggests that rapid evolution is under way. And change is likely to continue apace as organizations attempt to move into the new economy while maintaining their conventional products and markets. The capability unleashed by technology for new forms of working,

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such as sun-time working and teleworking, is fuelled by, and fuelling, increasing consumer demands for cheaper, better, faster and round-the-clock availability of products and services. The reality of customer choice is causing organizations to have to keep on reinventing themselves, making the notion of ‘change as excep-tion’ outdated. Since change is now the norm, we should perhaps instead be thinking of how to manage ‘dynamic stability’, according to Abrahamson (2000). We have yet to see the full impact of some of the shifts in the global marketplace on the nature and form of organizations, though we are already seeing the growth of a networked economy. We do not yet fully know how broadband and other technological developments will transform the way business will be conducted, what ‘work’ will look like and what customers will expect in the future. However, there are enough tell-tale signs of some fundamental shifts taking place to suggest that the route maps to success from the past may no longer fully apply. That does not mean that everything we have learned becomes invalid, but that, as Senge (1996) and others have suggested, the rate of learning needs to keep pace with, or outpace the speed of change, if we are to stand a chance of shaping our destinies, individually and collectively.

Speed

Organizations have to run fast just to stand still. Speed is paramount in product development to cut down lead times to market, and keep a step ahead of the competition, as was predicted by Eisenhardt more than two decades ago: ‘In high velocity industries with short product cycles and rapidly shifting competi-tive landscapes, the ability to engage in rapid and relentless continuous change is a crucial capability for survival’ (Eisenhardt, 1989). The ability to change fast in order to keep abreast or ahead of the competition is therefore a critical organizational capability. Indeed, an inability to change fast enough can do more than destroy a firm’s competitive advantage. It can put it out of business. Various studies have estimated the average life span of a company today as between 12 and 20 years. Even industries with traditionally long product development cycles, such as pharmaceuticals, are cutting lead times to get products to market faster, given the international challenges to lengthy patents. Moreover, rapid product development must be matched by ever more cost-effective means of production. Today’s consumer does not expect to have to pay more for improved products and services – just the opposite. Look at what has happened to the airline giants as the ‘no-frills’ airlines have proved that business success can be achieved by driving down costs to consumers, going for volume and at the same time trimming costs internally. In response to these competitive pressures, organizations have reached for the glossary of change management, aided in many cases by management consultants and gurus. While the terms used may have varied – ‘continuous process improvement’, ‘outsourcing’, ‘off-shoring’, ‘restructuring’, ‘downsizing’ or ‘re-engineering’ to name but a few – to many employees, they have all come to mean ‘major change’.

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The prevalence of change

The widespread nature of change is reflected in Roffey Park’s annual cross-sector workplace survey, The Management Agenda. In the surveys between 2001 and 2005, over 90 per cent of respondents indicated that their organiza-tion had undergone some form of change programme, largely involving restructuring, in the previous two years. This level of change is hardly surpris-ing, given the speed of globalization, the massive shifts taking place within the business environment, the impact of new technologies and the development of the e-economy, which will be explored in the following chapter.

Types of change: transactional, incremental,

radical, transformational

Organizational change is a term used to describe widely divergent processes that have different levels of impact on employees. Marketplace demands for low cost, high quality goods and services mean that ongoing change – introduced to improve the existing organization, its operations and its outputs – is required just to keep pace with the changing context. This is the process described by Bartunek and Moch (1987) as ‘first order’ or transactional change. When first order change occurs, interventions usually focus on formal structures, systems, work processes or work group relations. These are the ongoing modifi-cations to a company’s operations through, for instance, the introduction of total quality management processes, new equipment or the development of new prod-ucts and services. This relatively low-level change represents ‘noise’ within the system and is the stuff of day-to-day management.

In the Roffey Park surveys, organizations were typically focusing their efforts on their core business, working within ever-tighter cost controls and a third were making people redundant. The use of technology in particular has brought with it the demand for new skills, methods and working hours. Typical changes of this sort reported in The Management Agenda include the introduc-tion of new IT systems, outsourcing, the introducintroduc-tion of flexible working and the use of contractors, call centres and virtual teams. The impact of change may be limited to the group of employees involved in the process, or it may extend to the whole organization if the company brand requires that employees reflect certain attitudes and cultural attributes of the brand.

Variance or incremental change may be major, highly significant change, but it is gradual. Things do not go back to how they were before. While repeti-tive and incremental change may provoke employee resistance, it tends to be discontinuous change which provokes fear. Sudden change, often significant – almost a quantum leap – may require rapid and fundamental shifts in behaviour. If unpredicted, change can lead to shock and paralysis. Often what an organiza-tion experiences as shock, was in fact predictable. Sometimes an organizaorganiza-tion generates the shock itself by its failure to recognize or deal with variance.

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Radical change occurs at pivotal moments for organizations, such as when organizations reach a crisis point, leading to major downsizings or restructur-ings, or when an organization goes on a growth curve, transforming itself through strategic acquisitions and mergers for example. Most organizations experience radical change at some point in their life cycle. The start-up phase of an organization for example can be very turbulent and unsettling, but tends to be accompanied by excitement and a high degree of involvement from people affected by the change. As the organization grows and establishes routines, rad-ical change can occur as a major new form of leadership is introduced and there is a conscious attempt to develop a new culture. Similarly, when an organiza-tion is in maturity, radical initiatives can form part of renewal attempts. In decline, an organization may find itself the object of takeover attempts which, if successful, may seem very radical to employees of the acquired company. Perhaps the most radical change occurs when an organization goes out of busi-ness and is wound up.

If an organization loses touch with its shifting marketplace, more funda-mental, ‘transformational’ change may be needed for survival. Market giants such as British Airways have learned to their cost in recent years the price of being big and slow to respond to changing marketplace demands. Indeed, today’s organizations are more likely than not to find change imposed upon them by situational pressures. Change efforts geared to transformation are usually aimed at helping an organization regain strategic alignment with its environment (which may entail creating a new business altogether). When alterations to the basic framework are required, ‘second order’ change is required which can challenge the basic assumptions underpinning the organization.

Low success rates of change efforts

Change management is ‘the process of renewing the organization’s direction, structure and capabilities to serve the ever-changing needs of the market-place, customers and employees’ (Moran and Brightman, 2001). Few would argue that managing change is easy and successful change outcomes remain as elusive as ever. Indeed, despite, or perhaps because of, the sheer volume of change activity undertaken by organizations in recent years, the sad fact of the matter is that most change efforts, whether downsizing, installing new technology, transforming processes or restructuring, have low success rates. Mergers, for example, still largely fail to realize their potential.

Indeed, management literature is thick with examples of failed change efforts. Less successful or unsuccessful change efforts produce at best stan-dard financial performance. Even very successful companies struggle to recoup the cost of initiating change and, according to Beer and Nohria (2000), seven out of ten change efforts that are critical to organizational success fail to achieve their intended results. Only 38 per cent of respondents to Roffey Park’s Management Agenda (Holbeche and McCartney, 2004)

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reported that change had led to their organization achieving high perform-ance.

One of the most famous studies, carried out in the 1980s by Peters and Waterman, was an extension of a McKinsey project that had identified the characteristics of 43 so-called ‘excellent’ companies from the Fortune top 500 companies. The top 43 had consistently beaten their competitors over 20 years using a range of financial yardsticks. Five years after the book In Search Of Excellence (1982) was published, while companies like Mars, Johnson & Johnson and McDonald’s had maintained their excellent position, two-thirds of the 43 companies had slipped in the rankings and were strug-gling to varying degrees. Peters and Waterman concluded that nothing stays the same long enough in today’s changing environment to have the basis of sustainability.

Worse still, management literature is peppered with examples of rock-solid organizations whose fortunes have floundered. The Dun and Bradstreet organization maintains a record of corporate failure. They note that an over-whelming majority of businesses fail within five years and estimates suggest that 70–80 per cent of major reorganizations fail within ten years. In some cases, organizations transform and renew themselves. In other cases, firms collapse. Once powerful corporations, including high street giants such as Marks & Spencer, have been forced to transform themselves out of all recog-nition in order to survive and thrive again. Others, such as C&A, have disap-peared from the UK scene altogether. In the United States, major corporations such as Sears, IBM and Digital amongst others experienced major business downturns.

While the consequences of failed change efforts need not be so dramatic, they are none the less costly. In May 2002 Vodafone announced a loss of £13.5 billion due to having paid too much for acquisitions at the height of the technologies boom in the previous two years. Acquisitions frequently fail to achieve expected synergies, re-engineering takes too long and costs too much, downsizing does not get costs under control and quality programmes do not yield expected improvements. Outsourcing a non-core function may not only fail to save money and improve quality but also result in loss of intellectual capital, the source of future revenue growth.

Why do change efforts so often fail?

A number of factors are known to contribute to failure, including a general lack of strategic planning. Tough competition, unanticipated environmental challenges, grossly lagging behind competitors, lack of business re-evalua-tion, poor management and lack of skills can result in worsening financial performance, floundering strategies and crisis, according to Ascari et al. (1995). According to Dun and Bradstreet, key reasons for such failure include the failure to change when needed, and the inability to manage change well to achieve intended results.

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Ironically, according to Klein (2000), the reason why some companies fail to notice market changes is because they focus too closely on their product or service and lose sight of the bigger picture. Failure is also due to the inability of organizations to adapt and evolve quickly enough to survive and thrive in changing environmental conditions. According to Ashkenas et al. (1998),

the stark reality is that each of these organizations slipped from invincible to vincible when it was faced with a rate of change that exceeded its capability to respond. When their worlds became highly unstable and turbulent, all these organizations lacked the flexibility and agility to act quickly. Their structures and boundaries had become too rigid and calcified.

In a similar vein, Peters and Waterman’s analysis of the failure of many of the so-called ‘excellent’ companies pointed to various cultural weaknesses which undermined business success. Their very success blinded these corpor-ations to the need for continuous change. It seemed there were two broad danger areas for organizational survival: when organizations became unable to escape their past, relying too heavily on previous success formulae, and when they became unable to invent the future. Ironically, the inability to escape the past was fuelled by unparalleled track records of success, no gap between expectations and performance, contentment with current levels of performance. In addition, the confidence borne of an accumulation of abun-dant resources compounded the problem, together with a view that resources would win out – resources becoming, in effect, a substitute for creativity.

Similarly, success itself blinded managers to the need to invent the future. Success was used as evidence of the need to continue with the same strategy that had served them well until then, momentum was mistaken for leadership and there was a failure to ‘reinvent’ leadership. They failed to notice when the current business system had been optimized and had peaked; deeply etched cor-porate recipes for success blinded people to the need for change and in many cases their ‘super-tanker’ mentality left them vulnerable to the new rules, hav-ing left it too late to enter the game.

In another well-known major study of corporate change efforts, John Kotter (1996) found eight common reasons why change efforts fail. Complacency was a key factor, preventing people from seeing the need for urgency. Lack of a guiding coalition to steer and build the change effort was another, causing hapless change agents to struggle with ‘undoable’ challenges. Underestimating the power of a vision, and under-communicating the vision and rationale for change meant that people did not commit to a joint effort. Similarly, allowing obstacles to block the vision caused change efforts to go backwards. Failing to create short-term ‘wins’ to give people a sense of progress, declaring victory too soon and leaving the tough things unchanged, and failure to institutionalize changes firmly enough in the corporate culture caused organizations to lose the benefits of what had been achieved.

Therefore, given the widespread pressures for change, the importance of managing change effectively is more critical today than ever. Yet research sug-gests that on the whole change is badly managed, if it is managed at all.

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Even when a clear strategic purpose is driving change initiatives, such as the quest for increased market share, improved share value or competitive edge, poor change methodology can cause a change initiative to derail. This is hardly surprising given that change is rarely a neat, rational process. The inter-dependency of organizational elements means that when one change initiative gets under way, it often triggers, domino-style, the need for other changes. Even one small initiative can have knock-on effects to different parts of the system, leading to multiple ripples of change. Frequently change programmes are poorly implemented and communicated, and initiatives are not integrated with overall strategic goals. Consequently, the purpose of the change effort is unclear to employees and the ongoing nature of change can make any individ-ual initiative appear as simply change for change’s sake. Confused, uncertain and untrained, people become demotivated, feel unable or unwilling to per-form effectively. Absenteeism and ‘presenteeism’ abound. Low morale leads to low productivity and performance declines. Customers become dissatisfied and go to the competition. Rather than producing improvements, badly han-dled change efforts can cause an organization’s fortunes to take a tumble.

It is increasingly recognized that it is how the ‘people factors’ of change are managed that determines the success or otherwise of any change initia-tive. Indeed, the number one reason why change initiatives fail, according to research by the Gartner Group, is the inability of people to adjust their behaviour, skills and commitment to new requirements. Weak leadership is a common feature of change efforts that stall, for example when there is a mismatch between a sponsor’s words and actions, or failure to leverage support from other key people, which undermines implementation.

In today’s workplace, people are expected to absorb large amounts of change without difficulty and, to a large extent, organizational capabilities of speed and flexibility depend on employees’ ability to adapt and become ‘change-able’. Given the sheer volumes of change activity, what used to be thought of as major change, such as the introduction of a new work process, is often treated as minor incremental change, or low level ‘noise within the system’. Yet for employees, the challenges may be multiple – the need to master new skills, forge new rela-tionships, even develop a new workplace identity. Too much concurrent change can leave people confused about priorities and overwhelmed by the volumes of work required. It is understandable in such circumstances that many employees fail to find satisfactory answers to the question: ‘What’s in it for me?’

The key challenge of change lies in gaining employees’ willingness to com-mit to the change effort. Whether the triggers for change come from the compet-itive environment, or from within the firm, such as when a new CEO is appointed, change needs to be managed in ways that lead to employees being willing and able to perform well in the new arrangements. For employees to be willing to commit to new working practices and to go the extra mile, they need to feel that the effort is worthwhile. Resistance to change is commonplace despite, or perhaps because of, people’s familiarity with change. In many cases, resistance is understandable if employees are left feeling that their interests have been damaged and that they have no stake in the organization’s future.

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A time of transitions

The past decade has seen organizations downsizing, entering international markets, pioneering technological innovations, introducing new products and focusing on increasing customer satisfaction. Organizations are becoming increasingly permeable as their boundaries are eroded by external forces, such as government regulations. Erstwhile competitors become ‘partners’ and supply chains in sectors as diverse as construction, the health service and the oil industry become characterized by (often uneasy) attempts at partnering.

The changing business context reflects the broader transitions taking place in western society. Philosophically and scientifically we are moving from mechanistic, reductionist and linear thinking to more holistic, complex thinking. Politically we experience fragmentation and bi-polar divisions. In the world of work, the transition is away from ‘jobs’ towards projects. In educational approaches, the move is from teaching to learning. At the same time employees are becoming better educated and more questioning. They are much less receptive to command and control management practices.

In organizations, hierarchies and structures are being replaced or comple-mented by networks and processes. In management styles, ‘command and control’ is giving way to enabling, team-centred and participative styles. Whereas, once upon a time, companies were mainly concerned with what was happening in their own marketplace, the pace and scale of change in the broader global economies are producing pressures for change which no organization can ignore.

In terms of economic base, we are moving from the Industrial Age to the New Economy or Information Age. Arie de Geus (2003) argues that we are experiencing a fundamental shift in the world of economics, one that has become increasingly evident over the past twenty years. Conventional economic definitions describe business as being about ‘the production of goods and ser-vices by combining three production factors – land, capital and labour’. De Geus argues that these factors have played different roles throughout history, with the dominant production factor in any period influencing the thinking of those in power. This is not a question of ‘old’ economy versus ‘new’. Just as land gave way to capital during the Industrial Age, so now capital – since it is now so freely and widely available – is giving way to skilled labour, or intellectual capital, as the critical production factor. The technological revolution of the 1980s and 1990s speeded up the process, putting a premium on intellectual capital.

Intellectual and social capital

When intellectual capital becomes the main production factor, people and ideas become critical for business success. However, during the downsizings of the last two decades, very few organizations paid attention to the human and relational consequences of major change. According to Wieand (2003),

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‘Most reorganizations, even today, emphasize changes in strategy, structure and cost reductions; they do not give equal weight to the human issues and the reorganization’s negative impact on social capital.’ Social capital concerns the relationships people develop at work and with work, and how people work together.

The legacy of uncertainty of recent years has left many employees feeling vulnerable and obliged to do what is necessary to maintain job security. Change can lead to people feeling undervalued and suffering from excessive workloads. The sense of doing a worthwhile job and making a difference dis-appears. In such a context, the old ties of loyalty that used to bind employees to organizations start to wear thin.

This is compounded by the fact that, in the past two decades, the long-standing checks and balances in the employment relationship have largely disappeared. Traditionally, trade unions have provided employees with pro-tection against unfair treatment but in recent years, this role has largely been eroded in the UK, leaving the workplace without conventional checks and balances. Employee relations represent a contested arena, with power in the employment relationship tending to appear loaded in favour of the employer over the past two decades, given the relative inability of trade unions to pro-tect workers’ rights during their period of declining membership. Despite a plethora of employment legislation in recent times, UK workers have less protection against dismissal than anywhere else in the developed world, apart from the US. In many other European countries, workers’ councils and other forms of representative body protect workers’ rights through formal agree-ments and procedures (Flaig and Rottman, 2004).

On the other hand, some workers are likely to find themselves in a strong position. Martin and Moldoveanu (2003) argue that, as knowledge assets become more obviously capitalized – and the UK government has encour-aged initiatives to place a book value on different elements of ‘human capital’ – knowledge workers are likely to wrest more of the profits from sharehold-ers. This time the battle will be between the sources of capital and the pro-ducers of value rather than management and unions. They suggest that the Left is now siding with ‘the common shareholder’ against the well-compen-sated top tier of the labour pool and that major shareholders are increasingly likely to see some of their profits siphoned off.

These transitions suggest that organizations need to be ready for more than simply minor change within an existing organizational paradigm. According to Dunphy et al. (2003), incremental change may no longer be enough:

What is required sometimes is large-scale, transformative change: that is, a leap into a fundamental redefinition of the company or some significant aspect of it. This may involve developing a new definition of the business the company is in, a new strategic orientation or realignment, a new struc-ture, a significant change in the workforce skill mix or profile and/or a substantive change in corporate culture.

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Competitive advantage – the human dimension

The centrality of the human dimension to business success has waxed and waned in management thinking and practice in recent years. While the twentieth-century business model was based on compliance and standard-ization of product, in an increasingly global economy, where capital flows freely, organizations have to be able to develop infinitely tailored solutions as a source of sustainable, renewable wealth. It is through the skills and abilities of people that such value is added. Whilst strategic innovation, continuous process improvement and flexibility are crucial to business suc-cess, these can be achieved only if employees are willing and able to deliver what is required.

The ‘human dimension’ is therefore central to an organization’s wealth-creation potential and the time is good for the people dimensions of enter-prise to move centre-stage. In today’s so-called ‘Knowledge Economy’, an organization’s employees have become a major source of competitive advantage. Professor Jeffrey Pfeffer (1998a) of Stanford Graduate School of Business goes further, arguing that people are the main source since all other forms of competitive advantage are easily replicated:

What remains as a source of competitive advantage, in part because it is difficult to imitate and in part because other sources of success have been eroded by the competition, is organizational culture and capability, embodied in the workforce . . .

As Sir Digby Jones, Director General of the UK employers’ body, the CBI, said at a CBI conference in November 2004: ‘Business and people are the same thing’. The truth of this statement was evident, for instance, at the height of the ‘War for Talent’ at the end of the 1990s and at other periods of skills shortages, when companies were keen to attract and retain talented employees, there was widespread recognition that growth could only be fuelled by having the right people, in the right place, at the right time. Initiatives burgeoned aimed at attracting and retaining talent.

While the importance of the human dimension to competitive advantage is particularly evident in the service sector, professional service firms, and ‘New Economy’ businesses, it is just as true of manufacturing and other ‘Old Economy’ industries. These have to choose their markets carefully, get ahead of the game, make better products and offer customers real bene-fits in order to survive, let alone thrive in the global marketplace. Inserting one’s company into the value chain involves investing heavily in research and development.

More recently, the focus on closing the UK’s productivity gap with its devel-oped neighbours has led to a plethora of government-backed studies looking into why the UK lags behind, when its workforce is said to work the longest hours in Europe. According to a UK Department of Trade and Industry (DTI) consultation paper on High Performance Workplaces (2002), ‘The tools for

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success are innovation, investment, good business practices, a skilled and moti-vated workforce and an ability to draw on a flexible and fair labour market.’ This thinking echoes that of Arie de Geus (1988) who argued that companies could have their assets devalued or their ideas stolen, but as long as they possessed the ability to innovate and develop people, they would always remain ahead of the competition.

Implicit threats and opportunities of change

While awareness of the link between the human dimension and business success may be greater than in the past, actual business practice in downturns is a different proposition. All too often, when times get tough, organizations shed their most important asset – people. If a firm considers its primary responsibil-ity is to its shareholders, it will tend to save costs by reducing head count. If directors’ bonuses are dependent on share price, which tends to be boosted at news of job cuts, the longer-term logic will tend to take second place when decisions are taken about restructurings. In every sector, it is usually employees who bear the brunt when margins are squeezed, as employers try to maintain growth by cutting down the costs of production.

There is little doubt that structural changes can lead to improved financial returns in the short term. The past two decades have seen consolidation of industries, market realignment, wholesale restructurings and downsizing becom-ing commonplace. Executives have perfected the art of squeezbecom-ing the corporate asset and maximizing shareholder returns. What has previously been implicit, but has become more obvious in recent times in critiques of re-engineering, is that slimmed down corporate structures can become too lean; rather than leading to shareholder returns over time, the short-term focus on earnings achieved through cost-cutting has stripped away the resources necessary for renewed growth.

This is where change can severely undercut an organization’s ability to survive and thrive over the long term. If the process of change causes wholesale disruption to its workforce it tends to reduce commitment and performance levels, making recovery difficult. Change undertaken purely to improve efficiency rather than effectiveness may cut into the nerves and sinews of the organization as well as the fat. In which case, it can quickly become an ‘own goal’. As many organizations that have undergone exten-sive re-engineering would bear witness, this approach is akin to killing the golden goose in order to have one good meal.

Change therefore represents a high risk factor for organizations since it not only potentially strips organizations of needed talent, it also exerts a heavy emotional and physical toll on employees who survive job culls and experience ‘survivor syndrome’. The implicit assumption behind much restructuring is that, once the change has been implemented, business results will improve as efficiencies are maximized. In practice, this is rarely

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the case beyond the immediate savings made on salaries and companies often struggle to even resume ‘business as usual’, let alone improve on it.

Employees lose ‘agency’ – a sense of control over their destinies

Change is known to have a damaging impact on employee motivation, per-formance and retention, especially if the process of change is badly han-dled. From an employee perspective, the experience of going through change can be difficult, especially when people feel that they have no con-trol over what happens to them. To employees, change can seem confusing and endless. Employees have to grapple with uncertainties yet keep on with ‘business as usual’.

The effects of change can be worse. Individuals are always affected by change, whether they view the change in a positive or a negative light. Change can lead to heavy workloads, job insecurity, stress and unhappiness. Employees are expected to do ‘more with less’. Technology, rather than sim-plifying tasks, may have actually added to the workload of those in jobs. With mobile phones, modems and remote working methods, the working day no longer has clear boundaries for most employees. Unless people can integrate change on a personal level, they tend to experience high levels of stress. In the UK alone, it has been estimated that up to £6 billion is lost due to stress-related sickness each year and work–life balance has become a key issue in many organizations.

Customers too have adjustments to make. Like employees, they struggle to assimilate changes when familiar brands disappear, or companies that were once household names are acquired by faceless corporations. Customer loyalty is not to be taken for granted. If the service customers receive during the process of change is less than they would like, they tend to migrate to the competition.

On the plus side, when organizations and employees develop flexible and effective approaches to change, the chances of being able to survive and thrive in a competitive and turbulent marketplace are high. Organizations and employees learn essential survival skills and out-perform themselves. To survive and thrive therefore, organizations need to be able to deploy both talent and flexibility, embodied in the workforce, and be prepared and able to change on an ongoing basis.

The changing ‘psychological contract’

One other key consequence of change is that, at a fundamental level, it can result in a rupture of the employment relationship between employees and employers – the ‘psychological contract’ – and lead to harmful conse-quences for both parties. This was most noticeable during the era of major

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downsizings and restructurings in the 1990s when there was an apparently one-sided ending of the former employment relationship, with employers more obviously calling the shots.

This ‘psychological contract’ was based on a belief in the reliability of management to safeguard employee well-being and job security. For example, in the past, people may have expected ongoing employment in exchange for good performance. In today’s organizations, jobs can disappear, irrespective of the performance of the individual job-holder. People who might once have expected to progress their career through promotion up a vertical hierarchy along a recognized career path found that, as organizations flattened their structures, there were fewer opportunities to progress in conventional terms. However, levels of responsibility broadened, workloads expanded and people were expected to carry greater accountability for things they could not neces-sarily control directly.

People might once have expected to amass badges of their status and value to the organization the longer they stayed. Pay was usually geared to seniority. In recent years the link between length of service and pay has largely been disaggregated, and performance is the yardstick by which people are now judged. During the 1990s, older workers were usually the first to fall victim to redundancies and a youth-oriented culture now prevails in much employment practice. Where once there were powerful checks and balances built into the employment relationship, between unions and employers for instance, the power relationship has become one-sided. The psychological contract has been violated. The old reciprocities have been abandoned and the power balance has appeared to swing in favour of the employer. People no longer trust their employer to safeguard their interests.

This erosion of trust has undermined the basis of both commitment to the organization and higher levels of motivation. Where once the psycho-logical contract was relational in nature, more commonly today it is trans-actional. If people feel that they have been forced to buy into a one-sided ‘deal’ they are likely to react by putting their own needs first and, at an extreme, ‘righting’ the deal through subterfuge (such as manipulating processes so as to do less work), sabotage (such as deliberately undermin-ing an organization’s systems) and cheatundermin-ing (such as takundermin-ing time off ‘sick’). According to Deal and Kennedy (2000), ‘it took years to break down the level of trust built up by strong culture companies. It will take many more to get back to the same level’. Yet the development of the new psychological contract seems to have been left largely unattended by management.

At the same time, over the past decade, the value of human talent to busi-ness success has become ever more apparent. Knowledge workers who have developed highly marketable skills are less likely to be the helpless victims of corporate downsizings since in many sectors they continue to be highly sought after. In a full employment economy, it is the employers who are likely to struggle to attract and retain the best.

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This is shifting the balance of power imperceptibly towards the existing high performer or potential employee:

the structural shift in underlying worker values is such that organiza-tions that do not offer decent reward packages, provide opportunities for employee development, or meet aspirations for an improved work–life balance may not be able to guarantee the calibre of worker they need to match market competitors.

(Philpott, 2002) So if organizations are to attract, retain and grow the talent on which future success depends, a new psychological contract has to be forged. We shall explore the changing psychological contract in more detail in Chapter 4. In later chapters we will explore how change can be managed in ways that appear to be less damaging to the psychological contract, and may even lead to the development of a new, more positive employment relationship, serving the needs of both employers and employees, and creating the foundations for high commitment and high performance.

What does ‘successful’ change mean?

For today’s organizations, aspiring to maintain high performance in their chosen marketplace over time, the rules of the game are changing and the definition of what a successful change outcome looks like is under revision. According to Lawrence Bossidy, Chairman and Chief Executive of AlliedSignal Corporation (1998), ‘Nobody argues any more with the notion that what it takes to succeed today is radically different from what it took yesterday and that tomorrow’s suc-cess factors will be different as well.’

Defining ‘successful change’ therefore has to take account of a wider range of stakeholder needs than may have been the case in earlier times. In the past, a ‘successful’ outcome of change was usually defined as achieving the company’s short-term financial goals. It used to be thought that effective change manage-ment involved redesigning the organization – restructuring, re-engineering processes and redesigning work systems. It was assumed that having the right business strategy and good management processes was all that was required. If the change efforts resulted in greater financial control, increased productivity, a stronger focus on client servicing, better global communications and increased leverage through more effective use of IT and outsourcing, business results would improve and shareholders would be pleased.

What does ‘successful change’ mean when different stakeholders (and theo-rists) value different things? Some success definitions focus on outcomes and appear to be common to investors, customers, employees and managers:

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Business performance improves in the chosen marketplace.

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Financial performance is positive; there is sustained growth.

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Customers notice no drop-off in service, but do notice improvements in service or product.

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Customers are not only satisfied with the improvements in services and products but their ‘delight’ leads to their ongoing loyalty.

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The organization benefits from continuous innovation and an increase in knowledge capital.

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The organization has a successful image in the marketplace, a good market position.

However, whilst these business outcomes are all still desirable, in today’s volatile context, just focusing on short-term financial performance is not enough. The missing link in conventional change management was how to get the best out of the people who were left in the organization and on whose continued efforts future success depended.

When we asked respondents to Roffey Park’s Management Agenda surveys what had made their organizations’ change efforts successful, many people pointed to the importance of having the right business strategy: good marketing, effective financial controls, sound product market posture, tightly controlled costs and high quality. However, these strategic enablers were only part of the picture.

But, from an employee point of view, these ‘rational’ factors had not been the primary cause of successful change. Most felt that it was ‘good manage-ment’ which caused people to be willing to change, together with having an appropriate organization structure. Successful change occurs when people willingly change their behaviour to suit the circumstance. Many things can pro-duce changes in people’s behaviour. Theorists debate whether it is necessary to stimulate people to change – through articulating a crisis situation, or some other ‘burning platform’ – as a way of mobilizing an organization to change, or whether organizations spontaneously change in response to their environment. Trice and Beyer (1986) argue that circumstances of effective change management occur when the context gives rise to the emergence of a leader or change agent who is able to promote the emotional involvement and loyalty of followers; and also when individuals are able to employ particu-larly effective approaches to achieving commitment to new ideas and strate-gies. In the Management Agendas, people were willing to change as a result of the influence of a particular manager or colleague whom they regarded as a role model. Some felt that effective communications helped people not only to understand why change was needed but also made them want to contribute to that change. What employees saw as the main enablers of the successful business outcomes were the following:

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Employees willingly modify their skills, behaviours and performance to what is required.

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Employees enhance their skills and experience as a result of the change.

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Employees learn to become flexible and adaptable to ongoing change efforts.

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Employees remain committed to the organization.

On this last point, Pfeffer (1981a) points out that ‘it is the symbolic identifica-tion with organizaidentifica-tion or decisions, as much as real choice and participaidentifica-tion, that

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produces commitment and action’. Whilst most managers know how to achieve short-term gains, many are at a loss as to how to unlock the organization’s poten-tial to achieve far bigger returns over time. For business leaders, going for the low-hanging fruit of rationalization must be tempting. However, they should avoid taking the easy option: ‘Investors will reward a successful downsizing pro-gram, but they place a much higher value on companies that improve their bot-tom line by increasing revenues’ (Mercer Management Journal, 1994).

Increasing revenues through organizational renewal and innovation is far more difficult than achieving short-term gains through cost-cutting. Yet the real test of leadership mettle comes in the choices made when the business is under pressure because of adverse trading conditions. Rather than macho ‘slash and burn’ tactics, successful change management from a revenue growth perspective is likely to look more like ‘tinker and build’.

Sustainable success will be built on having the right strategies and the right people with the skill, will, place and time to deliver them. Success will involve being able to change and change again, while improving short-term business results and growing revenue potential for the longer term. Success will involve building human capital as the basis of future growth. Growing revenues requires a platform for innovation, for maximizing intellectual cap-ital and stimulating the higher value-added contributions evident in premium quality, bespoke products and excellent customer service. It will involve tak-ing employee needs into account, getttak-ing the best out of employees and pro-viding them with the means to deliver. It will require real leadership.

Is there a ‘best way’ to manage change?

Against this challenging backdrop, is there a magic formula for managing change successfully? Is it simply a question of adopting a change leadership style similar to Jack Welch, former CEO of GE, i.e. undertaking major step change, followed by periods of small-scale incremental change? These are issues we will explore in later chapters. In particular, we shall consider ways in which change efforts can satisfy both short-term business needs yet also form the basis of longer-term sustainability and success.

Theorists debate whether there is a ‘best’ way to manage change, especially when the nature and shape of businesses are being transformed in a turbulent context. Should change be planned and managed to produce coherent action? Should the interdependencies be identified and aligned if change is to be managed as a coherent whole? Or is the task of the change agent to foment change in one part of the organizational system and wait for the ripple effect to take place? Conventional wisdom used to suggest that change should be planned and implemented systematically. In the case of step changes, such as mergers and acquisitions, there is some evidence that planned change approaches work up to a point when it comes to integrating organizational systems; where they may fall down is in integrating organizational cultures. Indeed, there are some analysts who argue that it is practically impossible to change cultures deliberately.

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While there may as yet be no blueprint for managing change in today’s economic climate, some of the lessons drawn from ‘Old Economy’ organiza-tions which have stood the test of time, such as Intel, 3M, Hewlett-Packard, Gillette and Johnson & Johnson, may still apply. Writers such as Kotter and Heskett (1992), Collins and Porras (1995), Arie de Geus (1997) and Deal and Kennedy (2000) have documented the practices of such companies. These authors have found that these companies are able to change rapidly and to continuously develop new products because change is at the heart of their cultures. Similarly, Peters and Waterman (1982) suggested that only organizations that believe in continuous improvement and are flexible in their response to the demands of a changing marketplace survive success-fully. Learning from ‘living’, ‘excellent’ and ‘winner’ companies suggests that change management is therefore likely to be more about developing a change-able, flexible and innovative culture rather than just about applying a bunch of change techniques.

Building for the future

If organizations are to really thrive in changing times they need to aim for something more ambitious than mere survival. Sustainable success requires managers to be able to balance both the needs of the here-and-now with building for the future. As Hamel and Prahalad (1994) point out, the real management task should be more strategic than achieving short-term cost savings: ‘If the future is not occupying senior managers, what is? Restructuring and re-engineering, while both are respectable and important tasks, they have more to do with shoring up today’s businesses than with building tomorrow’s industries. Any company that is a bystander on the road to the future will watch its structure, values and skills become progressively less attuned to industry realities. Such a discrepancy between the pace of industrial change and the pace of company change gives rise to the need for organizational transformation.’

However, there is debate about what ‘sustainability’ means in today’s con-text. Is it about organizational longevity, as the studies carried out by Collins and Porras (in Built to Last) and De Geus (in The Living Company) suggest? Is it about contributing positively to the natural environment, or at least not harming the natural environment, as Dunphy and colleagues (2003) suggest? Is it about being a good and ethical corporate citizen, intimately connected with, and sustaining, the community?

Again, there is as yet no fixed formula. While many long-lived firms were successful in the past despite doing harm to the physical environment, this is unlikely to be considered appropriate in the future. It would appear that public attitudes to the various corporate scandals caused by indifference to the environ-ment, corruption and greed have reached a ‘tipping point’, and that such prac-tices are unlikely to be compatible with staying in business, let alone achieving sustainable success in today’s climate. In other words, if organizations want to